Product development
Powel’s focus will remain to be on innovation and on further development of our own products. Investments in R&D are expected to produce sound profits in the future.
International Financial Reporting Standards (IFRS)
The European Union has decided that all publicly listed companies from 2005 have to report their financial statements according to new accounting principles – International Financial Reporting Standards (IFRS). Through their membership in EEA, Norway is bound to implement the same requirements. Powel has identified the differences in the various standards, and the balance according to the new IFRS standard is presented in the notes. The new standard mainly effects depreciation of goodwill, capitalization of R&D and treatment of pensions.
Working in the international market
Growth through international business development is a vital goal for Powel. – Our ambition is to become an internationally recognized supplier of software solutions to players in the energy market, which is being deregulated and becoming liberalized and very competitive. In recent years the company has invested heavily in exploring new markets and open new market channels internationally. Similar to the accounting principles for R&D, investments made in international business development have been accrued on a current basis.
FINANCIAL INFORMATION
Reported historical accounts
Until the end of 2004, Powel produced accounts under Norwegian GAAP (NGAAP). From 1 January 2005, Powel has adopted International Financial Reporting Standards (IFRS) as the official reporting standard.
Accounting policies
The accounting policies that are included below are according to IFRS.
Consolidation Principles
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and its interpretations adopted by the International Accounting Standards Board (IASB) as of 15 August 2005. These are the Group’s first consolidated financial statements reported under IFRS and IFRS 1 has been applied.
An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Group is provided in 7.2.
Consolidated company
Powel ASA is a company domiciled in Norway. The consolidated financial statements of Powel for 2004, for the period 01.01.05 to 30.06.05 as well as the balance sheet as of 01.01.04, comprise the Company and its subsidiaries over which Powel ASA has “real” direct or indirect influence (together referred to as the “Group”) and the Group’s interest in associates. The consolidated statements show the financial position, the financial results of the year’s activities, and the cash flow for these companies as a single economic unit. The same accounting principles have been applied to all companies that are part of the consolidated group. Income and expenses of newly acquired subsidiaries are included from the time the group achieves real influence. Income and expenses of subsidiaries that are sold are included until the time of sale.
Basis of preparation
The financial statements are presented in NOK, rounded to the nearest thousand. They are prepared based on the fundamental principles governing historical cost accounting, comparability, continued operations and congruence. Transactions are recorded at their value at the time of transaction. Income is recognised at the time of delivery of goods or services sold. Costs are expensed in the same period as the income to which they relate, is recognised.
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing an opening IFRS balance sheet at 1 January 2004 for the purposes of the transition to IFRSs.
Elimination of internal transactions
All significant transactions and accounts between companies in the group have been eliminated.
Elimination of ownership shares in subsidiaries
Ownership shares in subsidiaries are eliminated for the consolidated financial statements using the purchase method. The difference between the cost of shares in the subsidiary and the book value of the subsidiary’s net assets at the time of purchase is analysed and assigned to the relevant balance sheet items based on current fair-market values. Any additional price difference due to expectations of future earnings is recorded as goodwill and is tested for impairment at least on an annually basis.
Conversion of accounts of foreign subsidiaries
When converting from foreign currencies to NOK, balance sheet items are converted at the year-end exchange rate. Income statement items are converted at the average exchange rate for the fiscal year. The difference resulting from using different exchange rate in the balance sheet and income statement is adjusted to consolidated equity.
Net investment in foreign subsidiaries
Exchange differences arising on a monetary item that forms part of Powel’s net investment in a foreign operation is recognised as an exchange difference in equity.
Minority interests
All consolidated subsidiaries are fully owned.
Associated companies
An “associated company” is one in which the group has an ownership interest of 20% to 50%; where the investment is of a long-term, strategic character; and where the group can exercise substantial influence. Associated companies are included in the accounts using the equity method. The group’s share of the profits and losses of an associated company is based on after tax results, and after deduction of any depreciation of excess value resulting from the fact that the cost of shares was higher than the acquired portion of book equity. In the income statement, the group’s share of the profits and losses in an associated company is listed under financial items. In the balance sheet, ownership in associated companies is included under fixed assets.
Principles for material items
Revenue recognition
Revenue is recognized as it is earned. Therefore, income is normally recognized at the time goods and services are sold, as defined when the significant risks and controls have been transferred to the buyer. Revenue from rendering of service is recognized when services are provided or by using the stage of completion method. The stage of completion is assessed by reference to surveys of work performed. For identified loss projects, the entire anticipated loss is recorded immediately. Income from licenses is recognized based on implementation progress. Revenues from maintenance contracts are recorded on a straight-line basis during the year.
Expense recognition
In general, expenses are recognized at the same time as the income with which the expenses are associated. Expenses that cannot be directly linked to income are recognized when incurred.
Intangible assets
Intangible assets consist of goodwill, development cost, customer portfolio and software and licenses.
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on business combinations. In respect of business acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 1 January 2004 has not been reconsidered in preparing the Group’s opening IFRS balance sheet at 1 January 2004.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.
Development costs
Expenditure on development activities is capitalised if the product is technically and commercially feasible, the Group has sufficient resources to complete the development and the product is expected to create future economic benefits for the Group. The expenditure capitalised includes cost of materials and direct labour costs. Subsequent expenditure on capitalised development costs is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. Other development expenditure and expenditures incurred to maintain the level of future economic benefits, are recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Cost related to development activities have been charged to salary costs and operating costs. Capitalised development is assumed to have a useful life of 10 years.
Other intangibles
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Customer portfolio is not amortised as it is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Instead an impairment-testing is performed annually. For other intangibles impairment-testing is performed at year end where there are indications of impairment. No impairment losses are found necessary so far.
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
Fixed assets
Fixed assets are shown on the balance sheet at cost less accumulated depreciation and impairment losses. If the recoverable amount of the fixed asset is lower than its carrying amount the asset is impaired. Costs associated with normal maintenance and repairs are expensed as incurred. Costs related to a restoration that significantly increases the economic life of a fixed asset are capitalized. Costs of replacing fixed assets are capitalized.
Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful life of the fixed a